Factoring in 'Worst Loss' over trading simulations...

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Factoring in 'Worst Loss' over trading simulations...

Post by flare9x » Mon Mar 13, 2017 8:15 am


When talking about risk management, many people work out their profit factor..... win 300... loss 100 = 3/1.... win 200, lose 100 = 2/1.

What are the thoughts of factoring the worst loss and also position size?

It might looks like this (monte carlo)

=if random <win% + starting capital+ (Starting Capital x % invest) x (avg win / worst loss) -
(Starting capital x % invest) x (avg loss / worst loss)

This was the formula for running a monte carlo over your worst loss -

However, it is interesting as its taking a ratio of the avg win and loss and comparing to the worst loss - versus the traditional avg win / avg loss.

Any math geeks out there care to chime in what their thoughts about this is?

Tim Arnold
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Re: Factoring in 'Worst Loss' over trading simulations...

Post by Tim Arnold » Mon Mar 13, 2017 4:13 pm

I usually remove the outliers, top x winners and losers in my mind are likely not statistically significant for analysis. There is always some tail chance of a black swan event, but that is a different discussion.

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